Why aren’t mutual fund investors freaked out?

The Chicago Tribune reports a puzzling finding regarding investors attitudes towards mutual funds in the wake of scandals involving late trading and market timing: While mutual fund trading scandals have captured the attention of regulators, investors remain relatively unconcerned, according to a study released Tuesday by a Chicago-based consulting firm. In a survey of 402 ...

By , a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast.

The Chicago Tribune reports a puzzling finding regarding investors attitudes towards mutual funds in the wake of scandals involving late trading and market timing:

The Chicago Tribune reports a puzzling finding regarding investors attitudes towards mutual funds in the wake of scandals involving late trading and market timing:

While mutual fund trading scandals have captured the attention of regulators, investors remain relatively unconcerned, according to a study released Tuesday by a Chicago-based consulting firm. In a survey of 402 mutual fund investors by the Spectrem Group, less than half said they were at all concerned about allegations of improper trading in the mutual fund industry. A little more than 20 percent said they were “very concerned.” Just over one-third of investors said they were “concerned” or “very concerned” about late trading and market timing, the two practices that have spawned the scandal roiling the $7.6 trillion mutual fund industry. Meanwhile, nearly 1 in 5 investors said that as long as they earned a high rate of return on their investments, they didn’t care about claims of favoritism for big investors. “There’s an overall lack of knowledge on the allegations,” said Ann Mahrdt, a director at the Spectrem Group, and one reason for the lack of concern is “they don’t see it affecting their bottom lines.” In fact, nearly 60 percent of investors said they were concerned about fee disclosures, compared with 37 percent for market timing or late trading.

For the record, I haven’t been following the scandals/investigations involving mutual funds, even though all of my stock investments are in such funds. Mostly that’s because these funds haven’t tanked — and even if there was a downturn, I try not to get too exercised about fluctuations in the short-term. Those who have more information about this scandal should comment away — I’m hoping that this is one of those episodes in which the system actually worked, and these abuses were caught before they could dramatically affect market integrity. [You’re just an assistant professor — maybe people with real money do care about this?–ed. Not according to the Trib piece:

The wealthiest investors–those with incomes of over $100,000–display significantly less concern over improper trading allegations, and are less likely to demand action, such as seeking reimbursements from improper trading or participating in class action lawsuits against fund companies.

You can take a look at Spectrem’s press release about the survey by clicking here.]

Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner

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